In the second of a three-part series on the private sector and climate change, analyst Kentaro Ide suggests that developments in corporate responsibility and social entrepreneurship require new modes of accountability and legitimacy.
Fluffy language. Claims lacking evidence. Outright lies.
These and other signs of greenwash (outlined in publications like “The Greenwash Guide” by Futerra Sustainability Communications) have become all too familiar, reducing the credibility of corporate responsibility (CR) campaigns.
With consumers and civil-society actors demanding more accountability over environmental claims made by businesses, there is a growing market for standards and ratings for measuring sustainability performance.
Like the businesses they certify, these watchdog businesses are not democratically accountable to any general public, and therefore rely on reputation (e.g., endorsements from governments and NGOs) to sustain their legitimacy.
Watching the watchdogs
But with so many organizations involved in the business of holding businesses to account, it is difficult to gauge the reputation of each certification label or rating scheme.
In their research program “Rate the Raters”, the think tank SustainAbility inventoried 108 rating systems measuring corporate sustainability performance, only 21 of which existed in 2000.
Without more consolidation in this growing market for ratings, the increasing number of rating schemes will likely increase confusion among users.
Another key issue is the deficit of transparency among the raters themselves, many of whom keep their methodologies confidential to protect their own competitive position.
Transparency is particularly important for gauging the independence of raters that also provide services to the companies they rate.
New experiments in accountability
In contrast to CR policies that strive to reduce negative environment impact, social entrepreneurs use business processes to actively make positive change.
Using business models built around a social or environmental mission, social entrepreneurs aim to maximize social returns rather than profit, using business as a means to fund their own activities.
Carbon Retirement, for example, allows users to offset emissions by buying and “retiring” EU emission permits, thus forcing industrial polluters to reduce emissions instead of buying permits.
Carbon Retirement has earned numerous accolades for its work, and exemplifies a proactive market-based initiative that goes beyond the “do no harm” ethos of CR.
Yet, precisely because they intervene proactively in areas of public policy, social enterprises have a significant responsibility to be transparent and accountable to the general public.
To this end, social entrepreneurs are continuously experimenting with a variety of legal and governance structures, including a range of models of stakeholder engagement.
Current discussions, such as those held at the recent Emerge Conference on social entrepreneurship, reveal that this field remains an ongoing experiment in holding private actors accountable for providing public goods and services.
Accountable to whom?
As with proponents of CR, social entrepreneurs must find effectively promote transparency and accountability to ensure that they do not become an avenue for greenwash.
However, despite efforts by many private organizations to engage with a range of stakeholders, the global nature of climate change means there is an endless list of individual and group stakeholders outside the decision-making circles of businesses.
The concept of carbon retirement, for example, may be legitimized by critiques of traditional offset schemes, but may also divert resources from developing-country projects that would have been funded by permit purchases.
The final part of the trilogy will examine challenges in ensuring that innovations and market mechanisms benefit developing countries, looking specifically at intellectual property rights and competition law.
Part one: The private sector and climate change
Kentaro Ide is a London-based analyst specialising in sustainability and export controls.